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U.S. Supreme Court
DEPARTMENT OF REVENUE OF MONT. v. KURTH RANCH, 511 U.S. 767 (1994)

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
No. 93-144
June 6, 1994

Justice Stevens delivered the opinion of the Court.[fn1]

Montana's Dangerous Drug Tax Act[fn2] took effect on October 1, 1987. The Act imposes a tax "on the possession and storage of dangerous drugs,"[fn3] § 15-25-111, and expressly provides that the tax is to be "collected only after any state or federal fines or forfeitures have been satisfied." § 15-25-111(3). The tax is either 10 percent of the assessed market value of the drugs as determined by the Montana Department of Revenue (DOR) or a specified amount depending on the drug ($100 per ounce for marijuana, for example, and $250 per ounce for hashish), whichever is greater. § 15-25-111(2). The Act directs the state treasurer to allocate the tax proceeds to special funds to support "youth evaluation" and "chemical abuse" programs and "to enforce the drug laws." §§ 15-25-121, 15-25-122.[fn4]

In addition to imposing reporting responsibilities on law enforcement agencies,[fn5] the Act also authorizes theDOR to adopt rules to administer and enforce the tax. Under those rules, taxpayers must file a return within 72 hours of their arrest. Mont. Admin. Rule 42.34.102(1) (1988). The Rule also provides that "[a]t the time of arrest law enforcement personnel shall complete the dangerous drug information report as required by the department and afford the taxpayer an opportunity to sign it." Rule 42.34.102(3). If the tax payer refuses to do so, the law enforcement officer is required to file the form within 72 hours of the arrest. Ibid. The "associated criminal nature of assessments under this act" justifies the expedited collection procedures. See Rule 42.34.103(3) (1988). The taxpayer has no obligation to file a return or to pay any tax unless and until he is arrested.

The six respondents, all members of the extended Kurth family, have for years operated a mixed grain and livestock farm in central Montana.[fn6] In 1986 they began to cultivate and sell marijuana. About two weeks after the new Drug Tax Act went into effect, Montana law enforcement officers raided the farm, arrested the Kurths, and confiscated all the marijuana plants, materials, and paraphernalia they found. In re Kurth Ranch, 145 B. R. 61, 66 (Bkrtcy. Ct. Mont. 1990).[fn7] Theraid put an end to the marijuana business and gave rise to four separate legal proceedings.

In one of those proceedings, the State filed criminal charges against all six respondents in the Montana District Court, charging each with conspiracy to possess drugs with the intent to sell, Mont. Code Ann. § 45-4" 102 (1987), or, in the alternative, possession of drugs with the intent to sell, § 45-9-103.[fn8] Each respondent initially pleaded not guilty, but subsequently entered into a plea agreement. On July 18, 1988, the court sentenced Richard Kurth and Judith Kurth to prison and imposed suspended or deferred sentences on the other four family members.[fn9]

The county attorney also filed a civil forfeiture action seeking recovery of cash and equipment used in the marijuana operation. The confiscated drugs were not involved in that action, presumably because law enforcement agents had destroyed them after an inventory. The respondents settled the forfeiture action with an agreement to forfeit $18,016.83 in cash and various items of equipment.

The third proceeding involved the assessment of the new tax on dangerous drugs. Despite difficulties the DOR had in applying the Act for the first time, it ultimately attempted to collect almost $900,000 in taxes on marijuana plants, harvested marijuana, hash tar and hash oil, interest, and penalties.[fn10] The Kurths contested the assessments in administrative proceedings. Those proceedings were automatically stayed in September 1988, however, when the Kurths initiated the fourth legal proceeding triggered by the raid on their farm: a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. See 11 U.S.C. § 362(a).

In the bankruptcy proceedings, the Kurths objected to the DOR's proof of claim for unpaid drug taxes and challenged the constitutionality of the Montana tax. After a trial, the Bankruptcy Court held most of the assessment invalid as a matter of state law,[fn11] but concluded that an assessment of $181,000 on 1,811 ounces of harvested marijuana was authorized by the Act. It held that assessment invalid under the Federal Constitution.

Relying primarily on United States v. Halper, 490 U.S. 435 (1989), the Bankruptcy Court decided that the assessment constituted a form of double jeopardy. Thecourt rejected the State's argument that the tax was not a penalty because it was designed to recover law enforcement costs; as the court noted, the DOR "failed to introduce one scintilla of evidence as to cost of the above government programs or costs of law enforcement incurred to combat illegal drug activity." 145 B. R., at 74. After noting that a portion of the assessment resulted in a tax eight times the product's market value,[fn12] the court explained that the punitive character of the tax was evident

"because drug tax laws have historically been regarded as penal in nature, the Montana Act promotes the traditional aims of punishment— retribution and deterrence, the tax applies to behavior which is already a crime, the tax allows for sanctions by restraint of Debtors' property, the tax requires a finding of illegal possession of dangerous drugs and therefore a finding of scienter, the tax will promote elimination of illegal drug possession, and the tax appears excessive in relation to the alternate purpose assigned, especially in the absence of any record developed by the State as to societal costs. Finally, the tax follows arrest for possession of illegal drugs and the tax report is made by law enforcement officers, not the taxpayer, who may or may not sign the report." Id., at 75-76.

These aspects led the court to the "inescapable conclusion" that the drug tax statute's purpose was deterrence and punishment. Id., at 76.

The District Court affirmed. Agreeing with the Bankruptcy Court's findings and reasoning, it concluded that the Montana Dangerous Drug Tax Act "simply punishes the Kurths a second time for the same criminal conduct." In re Kurth Ranch, CV 90-084%PGH, 1991 WL 365065 (D. Mont., Apr. 23, 1991) (reprinted at App. to Pet. for Cert. 22). That and the DOR's failure to provide an accounting of its actual damages or costs convinced the Bankruptcy Court that the tax assessments violated the Fifth Amendment's Double Jeopardy Clause. Ibid.

The Court of Appeals for the Ninth Circuit also affirmed, but based its conclusion largely on the State's refusal to offer evidence justifying the tax, and accordingly refused to hold the tax unconstitutional on its face. In re Kurth Ranch, 986 F. 2d 1308, 1312 (CA9 1993). The court first determined that under Halper, a disproportionately large civil penalty can be punitive for double jeopardy purposes. Id., at 1310. That the assessment is called a tax, as opposed to some kind of penalty, is not controlling. Id., at 1310-1311. The central inquiry under Halper, the court determined, is whether the sanction imposed is rationally related to the damages the government suffered. Id., at 1311. That inquiry only applies to cases in which there has been a separate criminal conviction, however.[fn13] The courtconcluded that the Kurths were entitled to an accounting to determine if the sanction constitutes an impermissible second punishment, and because the State refused to offer any such evidence, it held the tax unconstitutional as applied to the Kurths. 986 F. 2d, at 1312.